are two major processes employed for stock investment. They are,
of the investors use both these techniques for long term and short term
analysis is examining corporate results, earnings, dividends, new products,
research and the like.
involves applying many methods, tools and techniques as well, one of which is
the use of charts. Using charts, technical analysts seek to identify the trend
and attempt to exploit them.
Technical analysts using charts look for forms such as lines of support,
resistance and search for archetypal price chart patterns, such as
candlestick patterns and study technical
indicators , moving
Technical analysts widely use market indicators of many sorts, some of which
are mathematical transformations of price, often including up and down volume,
advance/decline data and other inputs.
Examples include the moving average, relative
strength index, and MACD.
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There are three basic tenets that technical analysis is built from:
Market action discounts everything
All known information related to the security is reflected in the price of the stock. This includes fundamental factors. As soon as new information comes to light it is immediately included in the price.
Prices move in trends
In technical analysis prices of securities tend to move in observable trends with a tendency to stay in the trend. The trend is considered to be intact until the trend line is broken. After a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. This is where the old adage “the trend is your friend” comes from, meaning you should trade in the same direction as the trend.
History repeats itself
Technical analysis is the study of what has happened to the price of a security in the past with the expectation that history tends to repeat itself. Many of the charts patterns in technical analysis have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves. The repetitive nature of price movements is attributed to market psychology.